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To: MasonS who wrote (32521)	10/9/1999 10:37:00 PM
From: puborectalis	Respond to of 41369

Fed inaction leaves room for gains By Elaine Garzarelli, CBS MarketWatch Last Update: 6:51 PM ET Oct 8, 1999 Also: columns & opinion NEW YORK (CBS.MW) -- The Federal Reserve did not raise rates at its October 5th meeting - instead they moved from a neutral to a tightening bias. The stock and bond markets initially fell on the announcement of the tightening bias since they had already anticipated a non-move. However, indices have recovered a bit with the S&P 500 and Dow up from October 5th. An unexpectedly weak employment report allowed markets to rally as the 8,000 drop in jobs suggested the economy may be slowing. The decline seems more than can be accounted for by Hurricane Floyd since jobs were weak even in regions far from the storm. Investors worried about the average weekly hours jump to 0.5% in September, however, it is important to keep in mind that the year-on-year rise is 3.8% - lower than last September's 4.1% increase. Columbia University's leading inflation index was announced today with a rise to a level of 108.9 from 106.9 ( a 6.7% compounded annual rate of change), but last month the index was down a bit. Our readers know we like this index because the Fed watches it and normally four or five consecutive declines in the index normally correlate with Fed easings, while four or five consecutive increases are associated with tightenings. We believe this number raises a caution flag for the Fed and raises the probability of another rate hike. Prior to June's rate hike, the index rose for four consecutive months. Our indicators remain in neutral territory and, therefore, we continue to recommend using any decline in stocks as a buying opportunity. We expect a Christmas rally should sentiment numbers remain bearish (a contrary indicator). Over the next 12 months, we look for a level of 12,500 for the Dow and 1,600 for the S&P 500 based on our valuation and bond models. Rate Analysis As we mentioned last week, the FOMC left the Federal funds rate at 5.25%. However, bond yields rose in spite of the lack of Fed action. We do not see a valid reason for yields to be at these high levels - especially with the low inflationary environment and budget surplus. The economy should be showing more sings of slowing as mortgage refinancings decline and consumer debt and oil prices remain high. We recommend buying bonds since we look for a 10-year bond yield of 4.5% within the next 12 months. Elaine Garzarelli is a columnist for CBS MarketWatch. You can get more information at her Web site.